How To: Financing an Infill Lot

What kind of financing is in play when you're looking to build on an infill lot? Steve, Chase, and Sherida discuss different options and strategies to get your project off the ground.  

Watch the full episode here: https://youtu.be/35TsebUJ7gY

Let's start things off with its most basic terms. Go to the very beginning here. Maybe you're going to do an infill lot, you're going to build your own property.

What kind of financing is in play here? What would you guys do?

Sherida Zenger

You're gonna go residential, you're probably going to have to do 20% down depends on if you're able to wrap your lot into it, which you should be able to sometimes it all depends, sometimes they're gonna want you to put 30% down and put a little more skin in the game, but you're gonna go residential.

Chase Leavitt

It depends on the building.

Sherida Zenger

Yeah, I was thinking single-family infill.

Chase Leavitt

Some infill, there are some good opportunities. 1-3 acres that are bigger units, 5+ plus units that could be 30 or 100 units infill.

Steve Olson

So the question is, is the lot is the land already approved? Is it permitted? Is it approved for a certain kind of building?

So in that case, do you own the lot? Or do you not? The lot counts as equity in the deal. So if a lender is only willing to go up to 70 cents on the dollar as to what they're going to loan you and maybe you own the lot free and clear you inherited or something that goes towards your equity, and you might be able to get a construction loan, just for what's called your vertical costs, right, actually building the building.

How does it get different though, when we're talking about land that is not approved? Maybe it's not subdivided? Or entitled? Well, how does the financing become different there any thoughts?

Chase Leavitt

In my understanding when you're getting a loan on a piece of dirt or some land? Its interest-only terms aren't going to be as good they're probably going to want to see a good chunk of money down at least probably 30 maybe 35% down so yeah if you're buying a piece of property for a million bucks, you're going to be into it at least 300,000 maybe a little bit more interest only.

Sherida Zenger

I think some people are gonna go the hard money route too.

Steve Olson

Right. Because there are loans through banks, where you fit a certain there's a loose set of parameters, right? I know that if I can check these five boxes, a bank is probably going to give me a loan but hard money is when banks don't want to give me a loan. That's why I'm willing to pay the astronomical interest rate that comes with hard money. Right and that's all a question of risk.

Sherida Zenger

Do I need to close pretty quickly? So I'm going to use hard money to close and then you can clip yourself out of it with a construction loan of some kind.

Steve Olson

Correct.

So the first step listeners have to take in mind, is my land in title, and approved doesn't have permits, you might be able to just get a construction loan, depending on how much money you're bringing to the deal. But are you subdividing? Are you actually developing dirt, you're going to need private capital or A&D capital.